In this issue of the Caribbean Petroleum
update, we seek to explore the importance of
Syria in the global oil distribution network
and factors that could impact oil prices in
light of its recent unrest.

The crude oil market, more specifically the price of crude oil is sensitive
to Middle Eastern conflicts. With the current
crisis in the Middle East it is no wonder the market is showing
concerns. Two years ago with the unrest in Libya, prices rose to
US$115 per barrel and with mention of Iran nuclear program
prices rose to US$110 per barrel. The average price for WTI
crude oil for August
2013 was US$106.97 a
1.2% increase from the
previous month. The
To access
Middle East region
CEIS website
accounts for a signifi-

CARIBBEAN PETROLEUM UPDATE

Image source courtesy of
http://www.thisismoney.co.uk/money/

cant portion of world crude production. Countries
such as Iran and Iraq together hold almost a fifth
of the output capacity of the Organization of
Petroleum Exporting Countries, according to
Bloomberg estimates. There is great concern that
continued on page 2/
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is a monthly Bulletin which highlights petroleum issues affecting or relevant to the
Caribbean, international developments that may affect the regionâ&#x20AC;&#x2122;s way of life and movements in oil prices and retail prices for fuel
regionally.

the conflicts in Syria could spread into other Middle
Eastern provinces and threaten oil supplies which would
further exacerbate the price of oil in the market.
Although much of the country’s exports have been
severely restricted and civil conflicts have crippled its
energy infrastructure, Syria’s position in the global oil network is nonetheless important. There has been much
speculation that the conflicts in Syria have contributed to
the increase in oil prices and this trend will continue if the
unrest perpetuates.
Syria is located on the southwest of the Asian continent,
north of the Arabian Peninsula in the Middle East and
bordered by Turkey on the north, Lebanon and Israel on
the West, Iraq on the east and Jourdan on the south. The
proximity to nations like Israel and Iraq has contributed to
making Syria an important global nation.
Also, a striking feature of the life in Syria and most
Middle Eastern countries is marked mainly by the distribution of its religious groups. With its religious culture
usually tied to its political unrest, any tensions in Syria can
spill over into neighbouring oil producing countries like
Iraq and can have a negative impact on oil supplies. In
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addition, with such close proximity to global oil pipelines,
Syria’s location could be a cause for concern as any
disruptions to pipelines can have negative repercussions
for many countries. Both factors are intertwined as both
can significantly impact global oil supplies.
While Syria plays little role in the production of oil,
historically, there has been some connection between
conflicts and the rise in oil prices. However, the extent to
which Syria impacts the price of oil is dependent on two
factors; firstly is its close proximity to crucial pipelines
and sea routes used for the distribution of oil and secondly,
its political unrest that is tied close to their religious
culture which gives rise to speculative demand of oil.
Firstly, let us take a closer examination of the proximity of
Syria to vital pipelines and oil distribution network. Iraq’s
natural gas flows through the Turkish port of Ceyhan, just
hours away from the Syrian border. To the southwest is
the Suez Canal, which connects the Red Sea and the Gulf
of the Suez with the Mediterranean Sea. The canal
transports about 800,000 barrels of crude and 1.4 million
barrels of petroleum products daily, according to the U.S.
Energy Information Administration (EIA).

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Caribbean Petroleum Update : August 2013 | Call: 1-876-927-1779

Another regional oil shipping route potentially threatened
by the Syria crisis is the Sumed, or Suez-Mediterranean,
pipeline, also in Egypt, which transports oil from the
Persian Gulf region to the Mediterranean. The Sumed
handles 1.7 million barrels of crude oil per day, according
to the EIA.
Additional, to the north of Syria is Turkey (see map below),
which has the Kirkuk-Ceyhan pipeline that carries a large
supply of Iraqi oil to the Mediterranean, and the BakuTblisi-Ceyhan pipeline which transports oil from Central
Asia. Also, to the east of Syria are the oil fields of northern
Iraq, a country that produced 3 million barrels of crude a
day in 2012.
Any disruption in the oil flows through any of these distribution channels could definitely have negative repercussions on global oil supply. In the past oil prices have risen
when those pipelines were sabotaged. One example of tensions affecting oil supply was in the case of Libya where
protests led to the closure of strategic oil terminals which
contributed to a rise in oil prices globally. Any uncertainty
surrounding the availability of oil inversely impacts the
price of oil; this simply means that if there is a shortage in
the supply of oil, the price of the commodity will increase.
With Syria and most Middle Eastern countries usually ex-

page 3

periencing some level of conflict whether political or
religious, there is another factor that must be considered in
light of this. This is oil inventory demand.
The uncertainty about oil supply in the future may arise
because of political or religious tensions in these countries.
Such doubts increase the need to store oil that will then
drive up the current price of oil.
On another note, many times during tensions and conflicts,
speculative demand plays a major role in price hikes. In the
case of Syria, there has been much speculation in light of a
U.S. intervention. Speculation in financial markets is
engaging in financial transactions with the anticipation of
profiting by selling the instrument or commodity at a higher
price at a later date. For example, when traders buy a large
number of contracts for oil to be delivered at a later date,
these are referred to as future contracts.
In the case of Syria, the fear of disruption to major pipelines transporting oil due to a possible U.S. intervention in
Syria could be fuelling speculative activities. This in turn
increases the price of future oil deliveries. Knowing this, oil
producers would withhold their oil supply which then push
up the price of oil.

Any disruption in
the oil flows
through any of
these distribution
channels could
definitely have
negative repercussions on global oil
supply
Image source: gloalresearch.ca

Image source:bloomberg.com
continued on page 4/

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Call: 1-876-927-1779 | Caribbean Petroleum Update : August 2013

Syria’s Conflict! Factors Impacting Oil Prices!..........................................…….. continued from page 3
With the expectation that future oil prices will be high,
the demand for future contracts increases, the price for
these contracts also increases and this in turn moves up
the current price of oil.
Whilst the conflicts are concentrated in the Middle East
the effects in oil prices has far reaching implications for
Caribbean nations. Their heavy dependence on foreign oil
makes them susceptible to external shocks like rising oil
prices. It is important to note that most of the oil imported
by Caribbean nations is used mainly to fuel the electricity
and transportation sectors. In any case, rise in global oil
prices will result in an increase in the energy bill and a
negative impact on the trade balances.
Additionally, the high and rising cost of energy adversely
affects the manufacturing and service industries and as
such makes the exports of Caribbean companies uncompetitive globally. In addition, to offset the cost for a rise
in fuel prices, increases will be transferred to the consumers in electricity rates and retail pump prices in Caribbean
countries.

oil exports would be as a consequence of damage to its
pipelines which are in close proximity to Syria. Additionally, Sunni-Shite tensions could spill over into neighbouring countries that would only exacerbate the situation and
ultimately oil prices. Syria’s proximity to these major oil
producing countries can be looked at as a strategic position, however, in light of a possible U.S. intervention in
Syria, neighbouring countries like Iraq and Iran would be
concerned about disruptions to their oil distribution network.
In the case of the Caribbean, any rise in oil prices will
increase the cost incurred by the respective governments
for importation of oil to fuel their economies.
More importantly, it will negatively affect the price of
electricity rates and transportation, in addition to impacting oil importation arrangements such as the PetroCaribe.
With such uncertainty in the market, it is envisaged that
the price of oil will continue to rise until some stability is
restored in Syria.

Furthermore, any rise in the price of oil will not only increase the amount of foreign exchange needed but will
also impact the PetroCaribe agreement signed by several
Caribbean countries and other agreements made for the
importation of oil. With the PetroCaribe agreement predicated on the price of oil, any rise in price will impact how
much is paid up-front and interest rate applied.
Conclusion
There are a number of factors that can impact the price of
oil inversely, among these include:




Disruptions in oil supply which can lead to a shortage
of the commodity,
Oil inventory demand which is as a result of
uncertainties in future oil supply and
Speculative demand.

With the recent conflicts in Syria, there is much concern
surrounding the factors stated above. Any impact on Iraqi

REGULAR UNLEADED GASOLINE AVERAGE PRICES AT THE PUMP
AUGUST 2013
Retail prices for Regular Unleaded Gasoline in the eleven Caribbean countries reviewed at the end of August 2013
showed marginal increases in prices for Bahamas, Belize and Jamaica with Belize experiencing the highest increase
of 4.2% from July to August 2013. Prices in Antigua and Barbuda, Barbados, Dominica, Grenada, Saint Lucia and
Trinidad and Tobago remained stable. However, there were minimal decreases in prices in August 2013 in St. Kitts
and Nevis and St. Vincent and the Grenadines between 1% and 2% respectivelyď&#x201A;§

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Call: 1-876-927-1779 | Caribbean Petroleum Update : August 2013

Analysis of the International Crude Oil prices over
the three months period June – August 2013 saw
prices in August averaging over US$100 per barrel
at US $105.79/BBL. When compared to the average
prices seen in June and July this average price was
approximately 10.5% and 1.2% higher respectively.
The highest weekly price seen in August for the
product was US$106.97/BBL – reflected in week
three while the lowest price recorded was
US$105.17 seen in week two. An average of the
three month’s average prices reflected US$100.15/
BBL. The increase in crude oil prices in August
2013 is attributed to the ongoing conflict in Syria
and uncertainty surrounding global oil supplies.

Average Monthly World Crude Oil Prices
(2010 - 2012)
109.61

106.0

110

US$/BBL

page 8

100

88.14

90
80
70

2010

2011

2012

60

Jan

Feb Mar Apr May Jun

Jul

Aug Sep Oct Nov Dec

Period

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Yr
Avg

Caribbean Energy Information System (CEIS)
primary report of historical annual petroleum energy
statistics provided for 18 Caribbean Countries.
Included are data on total energy production,
consumption, and trade; overviews of petroleum,
natural gas, electricity, as well as financial and
environmental indicators for over twenty years.

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